RQFII market growth appears to have tapered off

02 May 2014   Category: News, Asia, Global, Hong Kong   By Hui Ching-hoo

Lack of diversification and a slowdown in RMB appreciation have taken the shine off the RQFII market, after providers including China AMC (Hong Kong) and Harvest Global Investment transferred the quota of their RQFII quotas to other products.

Between March 28 and April 12, China AMC pared its quota from 14 billion RMB (US$2.24 billion) to 13 billion RMB. China AMC (Hong Kong) said that the firm transferred the quota from one product to other products/services in order to use the quota more efficiently.

Similarly, on January 29, Harvest announced it had received approval from the State Administration of Foreign Exchange (SAFE) to cut its quota for its Harvest MSCI China A Index ETF by 1 billion RMB to 2 billion RMB.

According to figures from the Hong Kong Stock exchange, about 45% of the granted quota for the China AMC CSI 300 Index ETF remains unused.

The RQFII scheme allows qualified holders to channel RMB funds raised in Hong Kong into Mainland equities.

Xav Feng, head of Asia Pacific research at analytical firm Lipper, told Asia Asset Management that lack of diversification has been the main hurdle for the development of the RQFII market: “The current situation is more or less similar to the QDII scheme. We’ve seen market enthusiasm has been cooling off considerably in the absence of innovative and customised RQFII products. The reversal of RMB appreciation has also played its part to divert market capital to non-RMB denominated assets.”

Mr. Xav added that the market outlook was dependent on how quickly the investment scope of RQFII products was relaxed.